This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.

Much has been written about Rachel Reeves’s big problem ahead of next week’s Budget. Should she spend money or make cuts to reduce Britain’s national debt?

New figures today from the Office for National Statistics (ONS) show public-sector borrowing between April and September 2024 was £1.2bn more than it was for the same period in 2023 and £6.7bn higher than the independent fiscal watchdog – the Office for Budget Responsibility (OBR) – had forecast it would be, so the latter might sound more sensible.

However, there are thoughtful ways to challenge this narrative. Saving money now doesn’t necessarily equal prosperity later.

In this week’s Home Front, let’s look at why the Chancellor should spend money by boosting benefits if she wants to boost Britain’s economy in the long term.

Benefits are often cast as a drain on the economy. Think of TV shows about “benefits scroungers” or the stereotype that anyone who needs state support is “lazy”. In fact, roughly a third of people who receive benefits are in work.

Some evidence shows that cutting welfare support has a contractionary effect on economic output. It also tells us that increasing state support not only increases people’s quality of life, but it can stimulate economic activity too.

This was the basic principle behind the Government’s pandemic support packages, including increasing benefits and furlough. And it’s still relevant now.

The Chancellor has said she will not scrap the two-child benefit limit in her Budget. That decision may yet prove to be a mistake.

At present, there are limits to the overall support that a family can receive because of the benefit cap, introduced in 2013, and the two-child limit on benefits, introduced in 2017. It’s thought the latter means somewhere between 250,000 and 300,000 children are currently living in households which are below the poverty line.

Alex Clegg, an economist at the independent think-tank, the Resolution Foundation, said the cap has only ever been uprated once, despite inflation, so benefits are worth significantly less for affected families in real terms than when it was first introduced – £10,000 less per year in London and £14,000 elsewhere.

Like the two-child limit, this is not the saving for the state it appears to be.

Children from low-income families who are living in poverty are more likely to have health issues than those who are not. This includes respiratory illnesses, malnutrition and obesity, according to the Royal College of Pediatrics and Child Health. They are also more likely to live in poor-quality housing, which can impact their health and be more at risk of homelessness.

Lifting the affected families out of poverty could save the state money because it would reduce the strain on other services such as the NHS and emergency housing in the medium term.

According to homelessness charity Crisis, the cap is tipping a growing number of low-income households into homelessness. This has a high human cost because the emergency housing used as temporary accommodation may not be suitable for children, but it has an economic cost too – the temporary accommodation bill is now around £1.7bn per year. The sheer weight of the cost is pushing a number of councils towards bankruptcy.

Research also shows that living in temporary accommodation significantly harms people’s health, particularly children’s health. It also can cause sleep and behavioural difficulties. Children living in poverty are more likely to require welfare support and possibly even support from social services.

Longer-term, scrapping the cap would also increase the likelihood that these children will grow up to be healthy young adults who can contribute to society and Britain’s economy in the workforce. As I wrote in this newsletter last week, increasing the support available for low-income families could also boost Britain’s falling birthrate which would boost the economy in years to come, too.

Clegg said: “Scrapping the two-child limit would be the biggest policy lever the Government could pull to reduce child poverty. But, up to 260,000 children currently affected by the two-child limit would see limited or no benefit from scrapping the policy if the overall benefit cap were to remain in place.

“Both policies should be removed as soon as possible.”

Next April, when benefits are uprated in line with inflation, but the benefit cap is not, there is concern amongst experts like the economists at the Resolution Foundation that more families with children will be pulled into poverty.

Clegg said scrapping both caps could lift “around 530,000 children out of poverty”.

This would cost the Government around £3bn next year, according to the Resolution Foundation’s estimate. But, as the spiralling temporary accommodation bill for homeless households shows, there is a huge cost associated with maintaining these caps, too.

If Reeves is serious about economic growth, she should consider scrapping the two-child benefit limit, the benefit cap and increasing the local housing allowance so that it covers the cost of private rents. That plan of action is the only way to reduce poverty for families with children, ensure the health of Britain’s economy and, above all, safeguard those kids as they grow into young adults.

Key Housing

It’s rumoured that Housing Secretary and deputy Prime Minister Angela Rayner has secured a boost for the Affordable Homes Programme (AHP) in next week’s Budget.

The boost is thought to be somewhere between £500m and £1bn. This is a drop in the ocean of what’s needed to build the genuinely affordable social homes that Rayner wants. However, if it does come through in the Budget, it’s a start. This money, if delivered strategically, could help some cash-strapped local authorities replenish their supply of council homes which, in turn, would reduce their temporary accommodation bills in years to come and, crucially, mean they have revenue coming back in from social rent.

Next, Rayner herself has written for i about why her new Employment Rights Bill will give low paid workers, such as care workers, more financial security. This comes amid criticism that her new legislation will come at a cost to businesses. Read what she has to say here.

Ask me anything

One question that has come up several times in recent weeks is as simple as it is valid:

“If inflation is down, why is everything still so expensive?”

I sat down with Rachelle Earwaker, senior economist at the Joseph Rowntree Foundation – an independent organisation which researches poverty – to answer.

Please keep your questions coming: @Victoria_Spratt, on X, formerly Twitter, @vicky.spratt on Instagram or via email vicky.spratt@inews.co.uk. 

Vicky’s pick

I’m currently reading the much-anticipated second book by Shon Faye. Love in Exile follows hot on the heels of Faye’s smash hit debut The Transgender Issue. Part-memoir and part-social commentary, Love in Exile is probably the most profound meditation on what love – giving and receiving it – means in contemporary society that I’ve read since bell hooks’ Communion, which was published in 2002.

Love in Exile will be published by Allen Lane in February 2025. You can pre-order here.

This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.